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ECB keeps bond purchase programme on back burner

Data published by the European Central Bank on Monday showed that the bank did not intervene to buy bonds of eurozone nations last week, despite recent renewed tensions in the markets.

The ECB first launched its bond-buying blitz, or Securities Market Programme (SMP), in 2010 to help debt-wracked eurozone countries that were finding it difficult to drum up financing in the normal way via the markets.

But in recent weeks the ECB's purchase volumes dried up to close to zero, indicating the central bank has not seen much need to intervene since pumping more than one trillion euros ($US1.3 trillion) into the banking system via three-year funding operations in December and February.

Nevertheless, yields on Italian and Spanish government bonds have risen rapidly in recent days amid concerns over the economic impact of drastic austerity programmes and this has let to speculation that the ECB may resume bond buying.

The programme was controversial from the start, with critics saying the ECB was overstepping its mandate in buying up sovereign bonds on the secondary market.

ECB President Mario Draghi and his predecessor Jean-Claude Trichet always said the measure was only temporary and aimed at easing strains in the 17-nation euro bloc but two prominent German ECB members quit in protest over the practice.

Between January and August 2011, the purchases dried up, but the ECB resumed the programme in August when renewed strains pushed Italian and Spanish borrowing rates to unsustainable levels.

At one point, purchases reached as much as 22 billion euros ($US29 billion) in a single week.